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spk01: Ladies and gentlemen, thank you for standing by, and welcome to the Babcock and Wilcox Enterprises Q4 and Full Year 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Megan Wilcox, Vice President of Investor Relations at Babcock & Wilcox. Thank you. You may begin.
spk00: Megan Wilson Thank you, April, and good morning, everyone. Welcome to Babcox & Wilcox Enterprises' fourth quarter and full year 2020 earnings conference call. I'm Megan Wilson, Vice President of Investor Relations at B&W. Joining me this morning are Kenny Young, B&W's Chairman and Chief Executive Officer, and Lou Salamone, Chief Financial Officer, to discuss our fourth quarter and full year results. During this call, certain statements we make will be forward-looking. These statements are subject to risks and uncertainties, including those set forth in our safe harbor provision for forward-looking statements that can be found at the end of our earnings press release and in our annual report on Form 10-K that is on file with the SEC and provide further detail about the risks related to our business. Additionally, except as required by law, we undertake no obligation to update any forward-looking statements. We also provide non-GAAP information regarding certain of our historical results to supplement the results provided in accordance with GAAP. This information should not be considered superior to or as a substitute for the comparable GAAP measures. A reconciliation of historical non-GAAP measures can be found in our fourth quarter and full year earnings release published this morning and in our company overview presentation filed on Form 8K this morning and posted on the investor relations section of our website at babcock.com. With that, I will turn the call over to Kenny.
spk03: Thanks, Megan. Good morning, everyone, and thanks for joining our call. Our results for the fourth quarter and full year 2020 really reflect the ongoing positive impact of our strategic plan, despite the adverse effects of COVID across all of our segments. Our strategic actions in 2020, including the rebranding of our segments, ongoing international expansion, and continued focus on cost-saving initiatives, provide a strong foundation for growth as we pursue our robust global pipeline. As Lou will discuss in more detail with the recent closing of our common stock and senior note offerings, we have dramatically improved our capital structure. As a result of the offerings, we have reduced our secure debt by $274 million and our future cash interest payments by approximately $16 million annually. Combined with the reduction in our required pension contributions, we expect to save more than $40 million annually in cash expenses on a pro forma basis. Based on 2020 adjusted EBITDA and net debt as of December 31, 2020, the offerings resulted in a net leverage ratio reduction from 6.4 down to 3.6 times pro forma for the effects of our offerings and related debt pay downs and certain fees. The proceeds from our offerings not only significantly reduce our cash expenses, but also provide capital to support the expansion of our clean energy technology portfolio as we continue to execute our growth strategy. While COVID caused delays and deferrals on several of our projects in 2020, we continued implementing our strategic growth initiatives and global expansion. We're gaining momentum with our new branding, continuing to expand our sales and service presence internationally, especially in Europe, Asia and the Middle East, and pursuing more than $5 billion of identified project opportunities in our pipeline through 2023. At the same time, we continue focusing on cost reductions, project execution, clean energy and carbon-free environmental technology research and development, and bottom line profitability notably we booked roughly 645 million of new work in 2020 including 167 million of bookings in the fourth quarter and end of the year with about 535 million in backlog as of december 31st 2020 which is a 21.3 percent increase compared to the end of 2019 And keep in mind, our pipeline and backlog do not include shorter lead time parts and services, which in 2020 represented 56% of our revenues. Looking forward, we continue to target 70 to 80 million of adjusted EBITDA in 2021 and 95 to 105 million in 2022 based on our current visibility, taking into account the seasonal impacts of cold weather and customers' reduced maintenance outages. on first quarter performance, which is typically historical performance for us. Our normal cyclical performance increase from Q1 to Q4 each year. Our global expansion to support the increasing demand for renewable and environmental technologies through both innovation and acquisition is progressing as planned. We see significant opportunities to grow our business profitably, benefiting from our improved project execution and operational efficiency and focusing on bottom-line results and strong cash management. Our strategic actions in 2020, combined with our recent comprehensive refinancing, have positioned us well to achieve our targets and continue to create shareholder value. So how did we get there? Well, as we announced last year, we have aligned our market-facing segments and financial reporting under three new segments. We're now focused on leveraging our three brands, B&W Renewable, B&W Environmental, and B&W Thermal around the world. Across these three brands, we are a technology innovator providing a comprehensive suite of waste energy and biomass systems, emission controls, ash handling systems, cooling systems, steam generation technologies and auxiliary equipment, as well as our ever-expanding aftermarket parts and services to optimize and upgrade existing equipment and operate and maintain plants. These segments directly reflect our core markets, technologies, and strategic pursuits and align with our customer needs by providing technology solutions to help them achieve a clean, sustainable energy and industrial infrastructure. Our technologies and our branding are aligned with the major trends driving our industry today. That includes the demand for power and critical infrastructure as it continues to grow globally. And hand-in-hand with this growth is a drive towards more renewable energy sources like waste energy and biomass. There are increasing environmental regulations globally, including restrictions on landfilling, more stringent emission standards, and water use regulation. And the fossil fuel install base is aging, driving the need for more aftermarket services and upgrades. And the potential for carbon legislation and regulation is growing. Our technologies help our customers meet these needs and requirements, and we are continuing our innovation to further develop technologies to support production of biofuels or syngas, hydrogen combustion, and other emerging markets. We also believe that global climate change efforts will include significant steps forward in the application of carbon capture technology. And as a power generation leader, B&W anticipated this need and has been working with universities, government agencies, and our own technical experts to develop carbon capture technology for several years. We have proven the efficacy of multiple carbon capture technologies through pilot and field testing, and they are now ready for commercial demonstration. So as we think about our growth strategy, we are focused on meeting the global need for renewable solutions and environmental technologies, reducing methane from waste, which carries significant environmental impacts, supporting our large install base and leveraging increasing opportunities to provide parts and services on our competitors' equipment, focusing on cash flow and profitability across the board and expanding our sales, service, and business development presence around the world to serve high-growth markets and the global energy transformation. As a part of this, we recently announced new regional managers for Europe, the Middle East, Africa, and Asia Pacific region, and we're opening regional headquarters in Dubai and Australia, while our European headquarters are in the U.K., And we're hiring sales and service team members around the world, more than doubling our presence outside the Americas. We have already realized success in each region through incremental parts and service sales, while positioning for larger upgrades and renewable environmental and thermal opportunities. This expansion is aligned with the roughly $27 billion in addressable market we see globally over the next three years. Today, we're poised to deploy our cutting-edge technologies globally to help address critical climate and environmental needs. I'll now turn the call over to Lou to discuss the key points of our financial performance for the fourth quarter 2020, as well as our full-year results. Lou?
spk02: Thanks, Kenny. I'll first review our full-year 2020 results, and then I'll turn to our fourth quarter 2020 results in detail. Further detail on our full-year results can be found in our 10-K that's on file with the SEC. Consolidated revenues in 2020 were $566.3 million, a decrease, as expected, of 34 percent compared to 2019. Revenues in all segments were adversely impacted by COVID-19, including the postponement and delay of several projects. The GAAP operating loss in 2020 was $1.7 million, including the impact of the non-recurring loss recovery of $26 million, which was offset by restructuring and settlement costs and advisory fees of $24.7 million, compared to an operating loss of $29.4 million in 2019. The improvement in operating income was primarily due to the insurance loss recovery, the positive impact of cost savings initiatives, and a lower level of losses on the EPC contracts, which was partially offset by the divestiture of Loyable and the impacts of COVID-19 on revenue in all three of our segments. Adjusted EBITDA improved to $45.1 million compared to $45 million in 2019. We continue to see strong momentum within our bookings and backlog with total bookings in 2020 of $645 million and a backlog at the end of the year of $535 million, a 21.3% increase compared to the prior year. I'll now turn to our fourth quarter results. Fourth quarter consolidated revenues were $149.9 million, down 17% as compared to the fourth quarter of 2019. As we said before, revenues in all segments were adversely impacted by COVID-19 as customers delayed projects and travel restrictions limited the ability of our company's workforce to be on site. The completion of large projects in all three of our segments in the prior year quarter also contributed to this decline. Our GAAP consolidated operating income was 2.2 million, inclusive of restructuring and settlement costs and advisory fees of 7.9 million, compared to an operating income of 10 million in the fourth quarter of 2019. The decline in operating income was primarily due to lower volume as a result of impacts of COVID-19. This was partially offset by the effects of improved gross margin in the BMW thermal segment, Adjusted EBITDA was $16.1 million compared to $22.8 million in the fourth quarter of 2019. Turning to cash flow, balance sheet, and liquidity, our cash flow from operations in the fourth quarter of 2020 generated $26.5 million of cash flow. We ended the quarter with unrestricted cash and cash equivalents of $57.3 million as well as approximately $33.7 million available for borrowings under our U.S. revolving credit facility. Total debt at December 31st was $347.6 million with $164.3 million related to the revolver and $183.3 million in last out-term loans. Interest expense in the quarter was $10 million compared to $27.5 million in the prior year quarter. the decrease primarily driven by reduced deferred financing commitment and contingent consent fees related to our U.S. revolving credit facility. As previously announced, on February 12th, 2021, we successfully closed the public common stock and senior notes offering. The offering included 29.5 million shares of common stock sold at a price of $5.85 per share. for gross proceeds of approximately 173 million. We also closed the senior notes offering of 125 million at an interest rate of 8.125%, which is due in 2026. The two offerings resulted in net proceeds of approximately 283 million after deducting underwriting discounts and commissions, but before expenses. In addition to the public offerings, B. Reilly Financial exchanged $35 million of its existing last out term loan for $35 million of the senior notes in a concurrent private offering. The interest rate on the remaining last out term loan balance was also reduced to 6.65% compared to its prior rate of 12%. On February 16th, 2021, we prepaid $167.1 million toward our outstanding revolving credit facility, reducing the outstanding borrowing balance to zero. On March 4th, 2021, we amended our credit agreement to, among other things, reduce its revolving borrowing availability to zero and its letter of credit availability to $130 million. Concurrently, we also paid $21.8 million of approved and deferred bank fees and $75 million toward our existing tranche A last out term loan. Taking into account the effects of these strategic actions, including the net proceeds of the public offerings and after underwriting discounts and commissions, but before expenses, prepayment of the revolving credit facility and payment of the bank fees and partial pay down of the tranche A term loan as well as the deferred interest and amendment fees and estimated advisory fees, pro forma total debt and unrestricted cash at December 31, 2020 would have been $233.3 million and $72.5 million, respectively. Based on current information, we're confident that our liquidity is sufficient to support our ongoing operations, working capital, and growth forecasts. Looking forward to 2021, we expect our interest expense to be significantly lower, driven by a reduction of total debt, the reduction of the rate on our last out-term loans, and the rate secured on our senior notes. Let's turn to our cost initiatives. In addition to the $119 million of cost savings initiatives we've previously disclosed, we implemented approximately $8 million of additional cost savings initiatives in 2020 for a total of $127 million. We've also identified another $11 million of cost savings actions expected to be implemented beginning in the first quarter of 2021. While the positive impacts of our cost savings efforts have been temporarily reduced by the adverse impacts of COVID-19, we continue to see the increasing benefits of cost-saving initiatives that we previously implemented, which affect both costs of operations and SG&A. These initiatives help drive adjusted gross profit in the thermal segment to 33.8% this quarter, as compared to 27.2% in the same period last year. we expect to continue to see benefits of that cost savings initiatives into 2021 and savings from changes implemented in 2019 and 2020 are fully realized over time in addition based on the performance of a domestic qualified pension plan the minimum required funding contributions through 2026 have been reduced by 75 percent as previously disclosed The current total minimum funding contribution for the period 2021 through 2026 is 35 million, which is to be contributed in the next two years. This is 107 million less compared to the company's previous expectation for the period 2021 to 2026. It is important to note that these numbers are subject to change with the performance of the pension fund investments. Looking forward, We're continuing to pursue further cost efficiencies and recoveries related to the EPC cost contracts. With a significant reduction in our secured debt and future interest payments due to the recently executed offerings, we are now in an improved position to take advantage of opportunities to expand our clean energy technologies portfolio and pursue our pipeline of over $5 billion of identified opportunities over the next three years. I'll now turn it back over to Kenny.
spk03: Lou, thanks. Well, in closing and in the near term, while we can't fully predict how COVID-19 will affect the timing of bookings and project progress, we are seeing renewed opportunities emerging as many of our customers have restarted pause projects or undertaking new projects and upgrades, leveraging our technology and capabilities. Combined with our recent strategic actions, this momentum is now driving significantly improved bookings and a confident outlook. Today, our focus is on winning and executing quality opportunities, as well as aftermarket services to serve our customers' needs for renewable energy, environmental solutions, and efficient operations. And based on current visibility in our customer plans, we expect continued strong bookings and significant earnings growth in 2021. With a return to quarterly trends more typical of our industry, including the seasonal impacts of cold weather, and customers reduced maintenance outages on first quarter performance, which is typical historical performance. With our recent public offerings, we significantly reduced our leverage and future cash interest payments, de-risked our balance sheet, and provided a strong foundation to support our portfolio expansion around clean energy technologies and pursue our more than $5 billion three-year pipeline of identified opportunities on top of our strong high-margin parts and services business. Looking forward, we remain focused on growing our renewable and environmental segments, including deploying our waste energy and carbon capture technologies to help meet critical climate goals as the next generation B&W powers the global energy and environmental transformation. That concludes our remarks, and I'll turn the call back over to our operator to assist with taking your questions.
spk01: As a reminder, if you would like to ask a question, please press star then the number one on your telephone keypad. Again, that is star then the number one. And your first question comes from Alex Reigel with B Reilly.
spk02: Morning, Kenny and Lou. Congratulations. Busy first quarter here. Thanks, Alex. Thank you. A couple quick questions here. First, it sounds like New Order activity has continued to be very strong in January and February. Maybe you could comment on that, comment on where you're seeing those strengths, either geographically around the world or in which division. And then maybe you could address the carbon capture technologies to speak to sort of the timeline of demonstration and then commercialization.
spk03: Sure. Yeah, no more than happy to. And Lou chimed in and provided some color here. But on the bookings in the quarter, we're obviously seeing clearly, based on the announcements we talked about in the thermal segment, some of the package boilers and some of the other upgrades that we've done, obviously you're seeing the businesses begin to issue uh new purchase order for for upgrades and enhancements which we like we like that that business area and we're starting to see that um come back more and you know some of that is in uh planning phases where they need to issue the po now in order to line up with perhaps a spring outage or or you know more importantly a fall outage for the company business so we're seeing some of that come in and um we're seeing also in around the world and we have some sizable um environmental opportunities as well. Those are in waste energy, but capturing emissions out of those particular facilities. And we're seeing that evolution, I think, globally start to come back. There are clearly projects that we thought we would have booked by now, but due to COVID, country by country around the world, there are various delays. At the same time, we're seeing other opportunities come in a little faster than we anticipated as well. And obviously taking advantage of those. But the environmental piece has been strong. Thermal right now is strong as everyone. is gearing more back in, focusing on their upgrades and enhancements and some of the outages that normally occur that didn't occur last year. So we're seeing that positioning come in as well, too. So all positive from that. And as things settle down, obviously, around the world a little bit more country by country, There are a number of other opportunities that we've been involved in, and we're obviously anxious to announce those as soon as possible, but those are underway, and we're starting to gain momentum on activities and other aspects. COVID, as we've talked about, obviously is difficult to get. Again, if you go country by country, and Australia, for example, has kept their borders completely closed during the entire pandemic. So a lot of new opportunities there were deferred or delayed just because you couldn't get engineering teams in, so on and so forth. So as that changes, we're seeing the activities of people plan, for example, in those areas as well, starting to move forward on new opportunities, wanting to quickly start preparing budgets and work through the planning phases. So you got a sense globally that at least within our industry, that a lot of the companies, whether it be industrial or utility, are making their long-term preparations here, are emerging back to begin updating, enhancing, looking at these proposals and opportunities, and to continue moving forward. So excited about that. On the carbon capture aspect right now, so we have basically three technologies that we're directly involved in and have jointly developed, one being chemical looping, the other being oxycombustion, and the third being RSAT, which is a regenerable agent that will absorb the CO2. So all three of those have moved through cycles in that regard, and they are – With the exception of chemical looping, chemical looping still needs one more round, a smaller megawatt proof of concept that we're hopefully going to do here soon under that regard, and then that would move into commercial phase. The other two technologies are now deemed ready for commercial deployment and discussions you know, have begun with a few customers in and around those technologies as well. So, you know, there's a drive and a mandate, which is publicly known out there. You know, Canada obviously has taken a strong carbon tax approach to that. And so we're seeing opportunities in Canada start to emerge. Obviously, the U.S. right now is, you know, without a doubt with the new administration is driving more around this, although, you know, official policy and other legislation hasn't come out yet. There's clearly a direction there. So we are seeing, you know, a few customers line up in the U.S. that want to move forward or understand how to capture carbon coming out of their either industrial utility facility. And in Europe, it's the same. We're actually, you know, especially in waste energy facilities, we're in talks with a few clients around carbon capture technology there as well, too. So, you know, it feels like the commercial side of this will unfold, you know, the course of the summer as we move forward on that. And then chemical looping, you know, we hope to move past that final stage on that so it's ready for commercial deployment sometime later this year. But, you know, it might take a little bit longer on that particular one. That is, you know, a unique technology that we jointly work with the Ohio State University for as well, too. So we're very excited about what that represents, obviously. And it's a technology that has been, you know, undergone lab concepts and other trials over the past six, seven years. So it's ready to move into the field and in a more robust way. So we'll be happy to discuss that, obviously, once we get that out. But we're pretty excited about that technology.
spk02: Very helpful. And now you have $72 million of cash on your balance sheet. I suspect some of that might be needed for working capital as your revenue position starts to grow very nicely over the next couple quarters. But how are you thinking about using that cash for M&A, and what does your M&A pipeline look like?
spk03: There are a lot of opportunities out from an M&A perspective, Alex. It's a great question. There are a number of opportunities out there. We're looking at You know, anywhere from, you know, a little bit larger adjacent-type companies or industries that, especially if you look at some of the cleanup work and environmental work that has to be done inside some of these areas, we think there's some interesting opportunities there, especially even on some of the older, you know, plants and fossil fuel plants where you've got significant items there. We also are looking at, you know, younger or let's say emerging technologies that is also complementary to what we're doing. That could be anywhere from looking at biofuels and syngas technology in particular around hydrogen and or other aspects could be in ethanol, it could be in other renewable fuels and the creation of those either by waste or biomass. And those are typically a little bit smaller technologies and a little bit unique in that area. And there are a number of companies out there that have some interesting technology pieces that need a little bit of a platform, i.e. a global company where they can they can actually grow um inside of and so we think those are interesting opportunities as well and we'll continue looking at those but you know main focus is on you know environmental services uh carbon you know uh capture services around that and augmenting what you know technologies we have as well as uh in biomass waste energy and some of the again going back to some of the syngas um capabilities and uh um around that we think that's some interesting areas as well too so we'll look at all of those um aspects um and uh you know obviously determine that based on a number of factors um the the technology itself how well we can bring it into the marketplace um you know from an effectiveness standpoint and obviously move to accretion as soon as possible. Some of the emerging technologies are, you know, are in a smaller revenue stage at this point where, you know, some of the more mature other areas we're looking at obviously would create synergies and be accretive almost immediately. So, you know, we'll balance that from looking at both sides of that, but those are the areas we'll focus on. Lou, I don't know, any other comment on that?
spk02: No, I think the one thing to point out is just since the beginning of the quarter, we've announced seven large projects, usually in the $10 million to $15 million range. And over half of those projects were in the renewable and environmental segment. And I think that continues to be a proof statement of where we're taking the company with Kenny's strategy of emphasizing renewable and environmental while we're still having some thermal for profitability. But I think that's a good indication of where we're taking the company. That's very helpful. And Lou, you mentioned in your prepared remarks, the expectation that there is sort of a step up from 1Q to 2Q to 3Q to 4Q in financial performance, most likely both in revenue and EBITDA. So we're all sort of aligned on sort of short-term expectations. Can you help us to sort of maybe think about the first quarter and how it might compare to previous quarters or how it might contribute into sort of the full year for 2021? Well, we don't really give guidance. We've set a target for 2021 of, you know, 75 to 80 million of EBITDA. We're confident on that target. If you go back in history, first quarter is always a lower quarter. We expect that will continue. And obviously, they're getting away from the impacts of COVID, but they're still here in the first quarter. We'd expect as COVID lessens and vaccinations rise, then the following quarters, as really follows the historical trends of the company, will increase and we'll hit the $75 million to $80 million target that we talked about. That's perfect. Thank you.
spk01: And again, if you would like to ask a question, please press start in the number one. There are no further questions at this time. I'll now turn it back over for closing remarks.
spk00: Thank you for joining us. That concludes our conference call. A replay will be available for a limited time on our website later today.
spk01: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
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